The Expiration of the Multi-Fiber Arrangement: an Analysis of the Consequences for South Asia

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The Expiration of the Multi-Fiber Arrangement: An Analysis of the Consequences for South Asia Ashe Haté Shisir Khanal John Larsen Paul Smart Romina Soria David Zanni Prepared for a select group of U.S. government agencies interested in issues of trade and South Asia

Public Affairs 860: Public Affairs Workshop, International Issues Spring 2005

Robert M. La Follette School of Public Affairs University of Wisconsin-Madison

©2005 Board of Regents of the University of Wisconsin System All rights reserved. For additional copies: Publications Office La Follette School of Public Affairs 1225 Observatory Drive Madison, WI 53706 www.lafollette.wisc.edu publications@lafollette.wisc.edu The Robert M. La Follette School of Public Affairs is a nonpartisan teaching and research department of the University of Wisconsin– Madison. The school takes no stand on policy issues; opinions expressed in these pages reflect the views of the authors.

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Table of Contents
Foreword ................................................................................................................. v Acknowledgments.................................................................................................. vi Executive Summary .............................................................................................. vii 1. Introduction......................................................................................................... 1 2. Pre-Expiration Predictions .................................................................................. 4 2.1 Predictions Using Economic Theory: A Simple Quota Model................... 4 2.2 Expert Opinion on the Consequences of a Quota Regime Expiration....... 5 2.3 What is Happening, and What is Likely to Happen According to the Popular Press................................................................... 8 2.3.1 India and Pakistan .............................................................................. 8 2.3.2 China ................................................................................................ 11 2.3.3 Sri Lanka and Bangladesh ............................................................... 12 2.3.4 Nepal ................................................................................................ 14 2.4 Main Expectations and Predictions........................................................... 15 3. Country Analysis .............................................................................................. 17 3.1 Winners: India and Pakistan ..................................................................... 17 3.1.1 India ................................................................................................. 17 3.1.2 Pakistan ............................................................................................ 20 3.2 Loser: Nepal.............................................................................................. 22 3.2.1 Lack of Technological Progress and Low Productivity................... 23 3.2.2 Arduous Geographical Terrain ........................................................ 23 3.2.3 Reliance on Single Market............................................................... 23 3.2.4 Political Situation............................................................................. 23 3.3 Ambiguous: Bangladesh and Sri Lanka.................................................... 24 3.3.1 Bangladesh....................................................................................... 24 3.3.2 Sri Lanka.......................................................................................... 26 4. Impact on the United States .............................................................................. 28 4.1 General Impact: Restructuring of U.S. Retailers ...................................... 28 4.1.1 Loss of U.S. Production ................................................................... 28 4.1.2 Benefits to U.S....
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